Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank may find the evidence it needs to ease back on its bond-buying stimulus efforts by next month’s monetary policy meeting.

Reuters

James Bullard, president of the St. Louis Fed.

“It is certainly possible” that the Dec. 17-18 Federal Open Market Committee could bring a cut in the pace of its $85 billion-per-month bond buying program, Mr. Bullard said in an interview. He noted that policymakers will have two new job reports in hand to take stock of the economy, although he added he will not “prejudge” the outcome of the meeting.

“The biggest thing is that on the jobs front, and the data generally– we have a lot of cumulative progress” since embarking on the bond-buying effort in September 2012, Mr. Bullard said. “Unemployment is down a lot, there’s been faster job growth,” and these were the primary things the Fed wanted to see as a result of the asset purchases, he said.

That said, Mr. Bullard–who has been a strong supporter of the Fed’s bond-buying effort and a consistent advocate of letting the path of the economy guide where the central bank pushes monetary policy–said it remains a bit of struggle to imagine cutting the pace of bond buying so soon. He remains “nervous” that inflation readings remain well below the Fed’s official target. He repeated his belief that no one has a really good explanation for why price pressures have performed in such a fashion.

Given where price pressures currently reside, inflation rising to the 2% target is “certainly not going to happen in a couple of months,” Mr. Bullard said. “But if we got some readings indicating it was going in that direction [of the target], it would be reasonable” to start thinking about taking the foot off the monetary-policy accelerator pedal, the central banker said.

Mr. Bullard is a voting member of the FOMC. Through much of the year, the official has served as one of the loudest voices warning about the threat posed by inflation that falls short of the Fed’s goal. His advocacy on this issue appeared to make the Fed strengthen its commit over the summer to keeping on target, and not above or below.

Expectations for future Fed action are in flux in the wake of the Fed’s decision not to slow bond buying at its September meeting. Last week, the Fed stayed the course again. Many private forecasters now expect the bond buying to continue into the spring as central bankers deal with data that’s fallen short of forecasts, in a climate of uncertainty created by the now-resolved government shutdown.

If Fed officials wanted to cut back on bond buying next month in a climate where inflation remained unambiguously weak, Mr. Bullard declined to say what his response would be. “I’d have to see what would be on the table. I wouldn’t say I’m definitely going to dissent on anything until I see what the proposal is,” the official said.

Mr. Bullard said he’s also concerned about new data that showed a cooling in already low rates of European inflation. He said this development could be significant for the European Central Bank, which has not been as aggressive at providing monetary policy stimulus relative to the Fed.

“The ECB has been a bank that has been reticent to try unconventional policies” like bond buying or clear guidance about future monetary policy actions, Mr. Bullard said. “With the very low inflation rate, they may have to reconsider their thoughts on unconventional policy,” he said.

In the interview, Mr. Bullard lamented the political wrangling that currently surrounds the confirmation process of current Fed Vice Chairwoman Janet Yellen to take over the Fed when current leader Ben Bernanke steps down next January. Several Republican senators have threatened to stymie her nomination as part of bargaining to advance personal causes.

Mr. Bullard said the Fed can weather the storm of having the chair slot mired in uncertainty if need be. “We can keep plenty of continuity in place even if the political process bogs down,” Mr. Bullard said, adding monetary policy making “will go on” because “the policy is made by the committee as a whole.”

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